South Africa: The Benefits Of Private Power

The national electricity utility Eskom Holdings (Eskom) is
caught between multiple facets of the proverbial rock and a hard
place. On the one hand it acknowledges the global calls made for
countries to reduce the impact of greenhouse gas (GHG) emissions in
line with South Africa's commitment to curb climate change. On
the other hand it will be bringing the Kusile and Medupi coal fired
power stations on stream in the next few months.

At the same time, Eskom continues to support the Request for
Proposals (RFP) process and programme of bidding for the production
of renewable energy by Independent Power Producers (IPPs). This is
despite the fact that this process will, in time, erode Eskom's
long standing status as a monopoly in the generation of energy in
South Africa.

As if all of the weight on Eskom was not enough, there are now
several reports indicating that the organisation (amongst other
state utilities), contravened certain environmental regulations
during the financial year 2010-2011. It would appear that this was
done in relation to Eskom's construction of the Kusile power
station, as well as the Bethal and Camden facilities.

These contraventions would ordinarily subject private companies
to punitive measures by the Department of Environmental Affairs
(DEA). The DEA is now said to be amending legislation to enable it
to take the same enforcement action against state owned entities as
it does against the private sector. "The National
Environmental Management Act 107 of 1998 was being amended to
enable criminal prosecutions to be brought against organs of the
state".1

All of these developments are unfolding at the time that the
world is praising South Africa for finally embracing renewable
energy sources for the production of electricity.

The green economy

It is an economic and environmental imperative for all
stakeholders in the energy generation industry to embrace
alternative forms of producing power.

The imperatives are found in all sectors of the economy and are
starkly amplified by South Africa's hosting of the 17th
Conference of the Parties (COP 17) to the United Nations Framework
Convention on Climate Change (UNFCCC) from 28 November to 9
December 2011.

This is the meeting of the parties to the Kyoto Protocol at
which South Africa will not only showcase its commitment to cut
emissions by 42% within 15 years, but will also, through the
Department of Energy (DOE ), announce the preferred bidders under
the renewable energy procurement programme RFP.

The South African government does not only acknowledge the
environmental imperatives through the commitments referred to
above, but it has also set aside funds to support the projections
towards reducing GHG emissions. The Industrial Development
Corporation (IDC) has set aside a total of R22 billion for the
development of green projects, as well as a further R3 billion for
producing green products.

These funding projections are only the beginning of a much
larger development project for the government of the Republic of
South Africa. The Minister of Economic Development, Ebrahim Patel,
has recently outlined the government's proposed strategic shift
from consumption to investment led growth. Ebrahim Patel stated
that, "although the solar water heater project was
symbolically important, it was only one aspect of a much larger
drive towards a greener economy".2

The renewable energy RFP is also an indication of the South
African government's commitment to greening the economy.
Through the submission of the proposals on how IPPs will produce
alternative energy from solar, wind, biogas, biomass and other
technologies, the growth of a green economy is given a much needed
impetus.

The requirements of the RFP provide for economic development,
local content and black economic empowerment. The submissions made
for the first uptake of the 3 725 MW of renewable energy
incorporate other aspects of a green economy.

Community trusts will be set up solely to empower the
communities in the areas where the alternative energy facilities
will be constructed. They are given an opportunity to be
shareholders in the companies that will produce alternative
energy.

The value of a community trust being a shareholder in a project
company (worth billions of rand and running a facility for at least
25 years) is not lost on these local communities. The more
immediate benefits can also be found in the local communities'
participation in the companies that will operate and maintain the
facilities. These facilities will earn an income from the uptake of
the energy generated and sold to Eskom.

Eskom is the buyer of the energy generated from renewable energy
sources and it will transmit the energy generated and sold to it by
IPPs into the national grid for on selling to South African
consumers. This is an opportunity which hitherto would have been
completely elusive to a community or a trust established to benefit
such a community.

The result of all of these developments is that renewable energy
is used to promote environmental sustainability while benefitting
the communities living in the areas where the energy facilities are
located.

Private and public sectors in competition

The renewable energy programme RFP has also promoted a very
healthy competition between the private and public sectors. While
Eskom is precluded from participating in this current RFP bidding
process, it is getting ready to develop its own concentrated solar
power plants (CSP).

The World Bank funding granted to Eskom to build, commission and
operate the coal based Medupi and Kusile power stations was on the
precondition that Eskom illustrated its commitment to cleaner
sources of power.

The World Bank has once again granted Eskom a US$250 million
loan to help it implement what is said to be two of the largest
renewable energy projects on the African continent. "Eskom is
going ahead with its long standing project to establish a 100
megawatt CSP plant"3 in the same area of the
Northern Cape and in parallel to the DOE RFP process open to the
private sector.

The Northern Cape has earned the status of the solar corridor
and will now be a beneficiary of the stringent economic
development, local content, job creation, community socioeconomic
development and black economic empowerment criteria.

The private sector participants in the renewable energy
procurement programme will benefit from the government set up
infrastructure. "The park is based on the economies of scale
principle, with private developers benefitting by sharing
infrastructure established by government".4

The greatest benefit for the private sector is the undertaking
by various government bodies to expedite the regulatory
requirements including a single environmental impact assessment for
the entire solar corridor project.

There are synergies and benefits derived for both the public and
private sectors. There are, however, also environmentalists (such
as Greenpeace) who are of the view that the efforts taken by the
government through the DOE and Eskom, are simply not enough.

On the morning of November 7, 2011, Greenpeace staged a protest
by locking the gates, refusing the construction workers entry into
the Kusile construction project and scaling the construction
cranes. This, they stated, was to register their dissatisfaction at
Eskom for failing to protect the environment by continuing to
construct, develop and commission coal fired power stations and not
making sufficient investments in renewable energy projects.

Conclusion

The benefits of private power will be felt throughout the South
African economy and environment. This is despite the criticism of
non-governmental organisations like Greenpeace and pending
amendment of NEM A by the DEA to prosecute Eskom for its
environmental transgressions in constructing Kusile, amongst other
projects.

The prospect of a community trust being part of a team of
technical specialists maintaining and operating renewable energy
facilities is a significant benefit for an economy that has
hitherto ignored local communities.

Footnotes

1 Blaine, S. (November 2011) New bid to subject state
owned enterprises to green laws, Business
Day

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